Void and vicious cycle, why should we oppose excessive financialization?

Author: Polar, Crypto KOL

Translation: Felix, PANews

Over-financialization is the extreme stage of financialization itself, which refers to the process of financial markets dominating the economy. In an excessively financialized economy, speculative activities and other financial transactions obscure the socially productive services that contribute more, while household wealth and inequality increasingly become linked to asset prices. In short, wealth is no longer directly related to hard work, nor is it decoupled from productive assets. This leads to more capital flowing into speculative activities. As Keynes said, “When a country’s capital development turns into a byproduct of gambling, it’s a bad sign.”

At the same time, it’s important to understand the role of markets. Markets are very important. Public life operates within a (basically) free market economy, where buyers and sellers voluntarily match, prices continuously update to reflect new information, and profit-seekers replace loss-makers (at least in theory). Traders’ decisions determine how scarce resources are allocated, thereby improving market efficiency. Theoretically, markets are inherently elitist, which makes sense. If resource allocation rights are held by traders, of course, the better they are at capital allocation, the more they will be rewarded.

Therefore, in an ideal free-market system, excellent traders would allocate capital to the societal needs most, gaining more capital in return; poorly skilled traders would be punished and have less capital; capital naturally flows to those most capable of allocating it. All of this should occur alongside the creation of real output in manufacturing and services.

But today’s markets can no longer fully achieve this. In the past, trading was a game only a few could play. Most of the 19th and 20th centuries, only the wealthy and well-connected could participate. Exchanges like NYSE were only open to licensed brokers and members; ordinary people had almost no access. Serious information asymmetry existed, and market data was not publicly available.

All of this was radically changed by digitalization. From landline phones to smartphones, and now to zero-fee apps like Robinhood, the investment process has been democratized. Today, anyone can easily trade 0DTE options, prediction markets, and cryptocurrencies. While this development has made investing fairer and more accessible, it has also sharply increased the importance of markets in daily life.

Over-gambling and Over-financialization

Due to rapid digitalization from the late 20th century into the early 21st century, financial speculation (i.e., over-gambling) has become easier than ever and involves more participants than ever before.

0DTE Options trading volume can be seen as an indicator of retail gambling

Is the current (excessive) level of financialization a bad thing? It’s safe to say: yes. Under excessive financialization, markets are no longer the “capital weight scale” Keynes described, but have become merely “tools for accumulating wealth.” But what I want to explore here is not “good or bad,” but causality: in a society where financialization and gambling are rampant, which is the cause, and which is the effect?

Jez describes excessive gambling as a process of “compression of actual returns and increasing risk.” Personally, I see excessive gambling as one of two natural responses to excessive financialization. However, unlike the phenomenon of Millennials leaning increasingly toward socialist attitudes, excessive gambling fuels the process of over-financialization, which in turn exacerbates the extent of gambling, forming a near self-destructive feedback loop.

Excessive financialization is a structural change—society relying more and more on markets; while over-gambling is a behavioral response—reacting after effort and returns are completely decoupled. Excessive gambling is not a new phenomenon; a 1999 study found that in the US, households earning less than $10,000 a year would allocate 3% of their annual income to lottery tickets, motivated by a desire to change their income situation. But in recent years, with increasing financialization (and digitalization), the popularity of gambling has shown a clear upward trend.

Socialism as a Response

Thanks to social media and digitalization, financialization has penetrated many aspects of life. Public life increasingly revolves around markets, which now play a larger role in capital allocation than ever before. Consequently, it is nearly impossible for young people to buy homes early; the median age of first-time homebuyers in the US has reached a record 39, and the median age of all homeowners is 56. Asset prices are seriously decoupled from actual wages, partly due to inflation, making it nearly impossible for young people to accumulate capital. Peter Thiel pointed out that this is a key reason for the rising sentiment of socialism:

“When someone carries a huge student loan debt or faces excessively high housing prices, they are in a long-term negative capital position, unable to accumulate wealth through real estate; if someone owns no shares in the capitalist system, they are very likely to oppose it.”

Asset inflation and soaring house prices (which I also believe are driven by social media’s mimetic desire and survivor bias) greatly reduce perceived social mobility. A recent Wall Street Journal poll shows only 31% of Americans still believe in the American Dream of “working hard to succeed”; most Americans also believe that by 2050, the wealth gap will continue to widen.

This pessimism only reinforces a certain perception: rising asset prices will leave those without capital far behind, and hard work cannot change this. When people no longer believe that effort can improve their lives, they lose motivation to work desperately within a “manipulated” system. This directly leads to the rise of socialist ideas, as a structural response to the increasing financialization of the current world. The hope is that a fairer distribution of assets can rekindle the link between effort and reward.

Socialism is an ideological response aimed at bridging the gap between the bourgeoisie and the proletariat. However, as of May 2024, public trust in government is only 22%. This has led to another natural response: instead of hoping socialism can bridge the gap, some turn to (excessive) speculation to climb to the upper class.

“Snake Eating Its Tail”

As mentioned before, the dream of rising through gambling is not new. But the internet has radically changed the mechanism of gambling. Today, almost anyone of any age can gamble anytime and anywhere. Behaviors once looked down upon, now deeply embedded in society thanks to social media’s glamorization and high accessibility.

The rise of gambling is an inevitable result of internet development. Now, the public can gamble without going to physical casinos; gambling is everywhere. Anyone can open a Robinhood account and start trading. Cryptocurrency is equally accessible, and online casino revenues have hit record highs.

As The New York Times said: “Today’s gamblers are not just retirees at card tables. They are also young people holding smartphones. Moreover, thanks to a series of quasi-legal innovations in online betting, Americans can now bet on almost anything from their investment accounts.”

Recently, Google and Polymarket announced a partnership to display betting odds in search results. The Wall Street Journal wrote: “Football and election betting are gradually becoming part of our lives, just like watching games and voting.” While much of this is for social purposes, it is mainly driven by excessive financialization, and even social betting is a result of a market increasingly integrated into daily life.

As household wealth becomes more linked to asset prices and wages lag behind, a deadly question arises: “If working hard can’t improve living standards, then why bother?” A recent study found that as households believe it is less likely they will own a home, their consumption relative to wealth increases, their effort decreases, and they take on higher risks. For renters with low wealth, the situation is similar—these behaviors accumulate, further widening the wealth gap between rich and poor.

Then survivor bias begins to play a role. Social media is flooded with stories of “overnight riches,” flaunting wealth, and people shouting “resign and survive by gambling,” fueling a broader “degeneracy” mentality. South Korea is a typical example: low social mobility, widening income gap, high housing prices, and a widespread tendency toward gambling. According to the Financial Times, retail speculation accounts for half of South Korea’s $2 trillion daily stock market volume. Due to youth unemployment, stagnant wages, mortgage pressures, and workplace and educational involution, they mockingly call themselves the “Sampo generation”—giving up love, marriage, and having children. Japan has the “Satori generation,” and China has the “Lying Flat generation”—the essence is the same.

In the US, half of men aged 18–49 have sports betting accounts; 42% of Americans and 46% of Generation Z agree with the statement: “No matter how hard I try, I will never be able to afford my dream house.” Instead of struggling over minimum wages in jobs they dislike, why not place a bet and potentially win a week’s, a month’s, or even a year’s salary in minutes? As Thiccy pointed out: “Technology makes speculation easy, and social media spreads stories of overnight riches, enticing the masses into a huge negative-sum game.”

The dopamine rush from gambling is significant. Long-term, these gamblers will inevitably lose money, but when they realize how easily they once made money, how can they confidently return to work? Of course, they’re willing to keep trying; they just need to get lucky one more time, hit the jackpot again, and then quit and resign.

“You only need a dollar and a dream”—a classic New York State lottery slogan, now perfectly suited for the new generation.

Thus, the “snake eating its tail” cycle truly closes: excessive financialization leads to disillusionment with the system, triggering a gambling frenzy, which in turn worsens excessive financialization. Media is filled with more survivor bias stories; more people gamble and lose money, resources are misallocated to non-productive activities. Markets no longer invest in socially beneficial companies but in those fueling gambling. An intriguing fact is that Robinhood (HOOD) stock has risen 184% this year, while retail traders spend only about six minutes researching each trade, mostly before trading.

I do not believe this is purely “market failure.” Markets are simply an extension of human nature, which is inherently flawed and selfish. So, resource allocation toward “most profitable” rather than “most socially optimal” cannot be entirely called market failure. Markets are not moral arbiters. Still, I find it sad: society has an industry dedicated to scam. But, as Argentine President Milei said: “You know the casino’s nature, yet you still go in and lose money. Who can you blame?” There are no tears in a casino. Personally, I believe excessive financialization distorts markets. Although markets will never be perfect, excessive financialization makes them more like casinos, and when negative outcomes can also generate profits, there is a bigger problem than the market itself.

Regardless of whether this practice is moral, it accelerates excessive financialization. Stock prices rise faster, unemployment increases. The wave of escapism grows, with platforms like TikTok, Instagram Reels, and the Metaverse emerging continuously. But the core issue is that gambling is fundamentally a zero-sum game. Technically, due to transaction fees, it’s more like a negative-sum game. Even from the simplest zero-sum perspective, it creates no new wealth and benefits no society; the same money just shifts among different people. Capital for innovation, development, and positive creation is decreasing. As Musk said, “The essence of civilization lies in creating far more than we consume,” but in a society of excessive financialization, this becomes increasingly difficult to uphold. The public must confront other negative effects: escapism.

As more time is spent online, the gap between middle and upper classes in leisure activities has never been smaller. This, coupled with reduced social mobility, not only greatly diminishes motivation to work hard but also stifles the drive to create beautiful things.

After reading “Choose Good Quests,” I increasingly feel that good missions (good quests) are becoming fewer. Robinhood’s initial mission of “democratizing investing with zero fees” has turned into a “maximizing profit from retail traders” bad mission. Comparing Y Combinator’s 2014 and 2025 “Request for Startups” also shows the same trend: fewer good missions (or lack of funding).

My personal conclusion is that in a highly financialized society, good missions are decreasing; without good missions, people cannot gain returns far exceeding consumption, and society cannot achieve positive-sum dynamics.

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